Beginning on April 7, the Federal Reserve Bank of Kansas City will hold a series of forums to discuss several regulatory compliance hot topics including trends in consumer compliance. The recently released Powerpoint presentation provides some insight into the Fed’s supervisory focus for the coming year. (You can view the presentation here.)

The forums will be held during April in several locations within the Kansas City Fed’s region: Oklahoma City, Wichita, Kansas City, Albuquerque, Kearney, Omaha, Denver and Casper. What follows below summarizes the first part of the presentation. Future blogs will delve into some of the detail.

Supervisory Trends

During 2014, the Kansas City Fed indicated that 64% of their reviews were pricing reviews, 22% were redlining and 14% were underwriting. If the same trends hold in 2015 then your odds of getting a pricing review are about 2:1. The odds of a redlining review is approximately 1 in 4 or 25% and an underwriting review about 1 in 6 or 15%.

The areas of supervisory focus for 2015 are: fair lending, UDAP (note the KC Fed did not say UDAAP), Flood and Vendor Management. In the fair lending area the KC Fed indicates that “42% of bank examinations where supervisory follow-up was required in 2014 had weaknesses identified in their fair lending programs.” The KC Fed goes on to list three areas of weakness.

Pricing and Underwriting Discretion

The presentation has not been delivered as yet, so we don’t know what the KC Fed has in mind for each of these topics. However none of these topics are new to compliance officers. Pricing and underwriting discretion as a fair lending issue has been around for years. Surprisingly, some institutions still do not monitor these decisions either for HMDA or non-HMDA credit products. (If you have questions about pricing and underwriting discretion, Preiss&Associates would be happy to spend a few minutes on the phone discussing issues. )

Overlooking Market Demographics

Overlooking market demographics as a fair lending topic hasn’t been around as a hot topic quite as long as discretion, but nevertheless it is not a new topic. This area comes down to knowing your customers and competitors. For example, what does/do your lending area(s) look like in terms of customer segments and housing stock? How are you performing relative to your competitors in your markets? Data to perform these analyses are readily available. (Again, if you want to talk about these kinds of issues at your institution, we would be happy to spend some time with you talking about them.)

Lack of Data Analysis

Finally, lack of data analysis is a product of the very analytical fair lending environment we live in. With the advent of the new data elements for HMDA reporting (when they get announced), data analysis is going to become even more important. Please be prepared.

To sum up the first part of the Consumer Compliance Hot Topics presentation from the Kansas City Federal Reserve Bank, the fair lending thrust is nothing new. But, it is clear by the need to reiterate these topics that some institutions still are lacking in their programs.